Vol 8, Number 1, January 4, 2011

Background

“Cyberfying” the electric system is one of the biggest topics in today’s energy world.  Article after article extols the wonderful things the smart grid will do for customers, from heightening energy system reliability and safety, to capturing energy efficiencies, to more easily incorporating renewable resources and facilitating electric vehicles, etc.

Given all these assumed benefits, smart grid proponents seem surprised that so many consumer advocacy organizations — particularly those concerned about low-income ratepayers – are urging caution. These advocates are not Luddites blocking the path to progress.  We have legitimate concerns about maintaining critical policies that often took years to put in place – policies that protect ratepayer health and safety and policies that require utility regulatory commissions to consider whether application of a new technology will benefit some ratepayers at other ratepayers’ expense.

Consumer advocates recognize that improving transmission and distribution systems can reduce costs and improve system reliability.  But the hype around putting “smart” meters on every house gives rise to four areas of concern:

1. The costs associated with purchase and operation of smart meters.
2. The effects of time-differentiated rates on consumer bills.
3. Technological issues around security, billing accuracy and consumer privacy.
4. Increased rates of service disconnection stemming from prepayment requirements and particularly from the remote disconnection capability the meters provide.

This article takes a closer look at the issues the clean energy community must address as the smart grid movement goes forward. Comments are invited and encouraged.

Costs

Replacing every meter in a service territory is far from cheap. Since they receive a percentage of their capital investments as profit – and meters are capital investments — utilities stand to make a sizable return from the changeover. For this reason alone we must be sure their investments are prudent.

Savings from laying off meter readers won’t come close to covering the cost of installing more sophisticated meters with all the capabilities allegedly needed to modernize the electric system.  Consumer advocates believe the “used and useful” standard of traditional regulatory policy must be applied to the new technology.

Demand-response programs using much less expensive controls are well-established in many regions. Meanwhile, the value of smart meters remains largely theoretical, and their promise may not be realized without installing additional accessories such as yet-to-be-developed “smart appliances” attached to some sort of communication device.

With so much unproved and unsettled, the financial risk is significant. Consumer advocates believe customers should not have to assume that risk.

Case in point: The old electro-mechanical meters typically last 30-50 years. It’s disturbing to note that new meters installed by a Texas utility lasted a mere seven years … while the cost to ratepayers was amortized over 11 years!

So the question must be answered: Who benefits and who pays?

Time-of-use pricing

“Time of use” or “real time” pricing” have such negative connotations already that proponents have switched to the term “dynamic pricing.” Several studies have assessed ratepayer benefits from these pricing schemes. Suffice it to say the benefits have not been established, especially for low-income customers who may not have the flexibility to shift loads.

The Institute for Electrical Efficiency, an Edison Foundation program, recently published a white paper, The Impact of Dynamic Pricing on Low Income Customers that finds low-income customers will benefit from time-of-use pricing.  But it reaches that conclusion by simulating what happens to one kind of user (one load profile) on a hypothetical urban utility.  Residential customers — including low-income customers — of different utilities have varying load profiles. Averages are not appropriate measurements when only a few customers can substantially shift their loads while most customers cannot.  A number of the studies concluding that ratepayers will benefit from time-of-use rates don’t include the cost of the meters in their cost-effectiveness equations.

In Puget Sound Energy’s time-of-use experiment a decade ago, two housing types shifted their loads very little: mobile homes and multi-family dwellings, the two types of housing most heavily populated by low-income households.   If the household can’t shift load from a high-cost to a lower-cost time because it’s already using the absolute minimum amount of power possible or because it lacks appliances that allow delays or respond to signals, the smart meter becomes no more than a cash register for the utility.

Again, who gets the benefit from being able to shift load, and who pays for adapting the system to facilitate the shifts?

Technical issues

In an age of identity theft and computer viruses, cyber security and consumer privacy must be taken seriously. Problems with billing accuracy have arisen, and it’s not yet clear whether some of the meters simply aren’t as precise as they are touted to be, or if there were problems with the rollout.

Utilities have a long history of working to protect consumer privacy, but their systems are not flawless.  It’s not clear who will have access to the data the smart meters gather and send to the utility or to the remote signals to turn up the water heater temperature up or down. For example:

• Who will supply the software or the communication links?
• Will the fine print grant them the right to distribute, sell or trade the gathered information?
• Will their affiliates get to know when and how often the bathroom light is used at night or how dark you like your bagel toasted?

Disconnections

The biggest fear for low-income consumer advocates is that smart meters can and will be used to circumvent consumer protections that have been years in the making.  In particular, the technology’s ability to let a utility easily disconnect a customer remotely is prime for abuse.

Most states have established reasonable disconnection procedures and timelines.  These include sufficient notice of potential disconnection and opportunities for the customer to make payment.  Low-income households usually are in crisis payment mode on several fronts: they can’t take care of multiple bills at the same time, so the next bill that gets paid is the one in crisis.  The electric bill crisis often occurs when the utility representative comes to the door to disconnect service.  Some states, in fact, require a site visit before disconnection is allowed.

Low-income households contain greater percentages of people who qualify for medical exemptions on their utility bills.   If exemptions aren’t requested or aren’t honored due to oversight or some other reason, disconnection can be life-threatening.

This is, in fact, why low-income advocates are dead-set against pre-payment meters for low-income households. Smart meters already are being used as pre-payment meters in some areas and have been touted as money savers for the utilities. But they actually function as automatic disconnect meters that pay no heed to the household situation.

And customers aren’t even offered a lower rate for the second-class service they will get.

Conclusion

Smart grid technology offers intriguing possibilities for greening the electric system, reducing costs and lowing bills. But the benefits may not be shared equally, even when everyone pays the system costs.

New meters are expensive, and buying the smart appliances whose use could offset that expense may be well beyond the means of many consumers.

Time-of-use pricing offers scant benefit to low-income families who can’t shift their use patterns since they’re already using the least amount of power they possibly can. Utility revenue collection is a zero sum game; the “average” consumer won’t pay more, but low-income households aren’t average.  They will pay more for the power they have to use but can’t shift, and they’ll still pay for the meters that facilitate and track load shifting – the same meters that will allow their electric service to be abruptly and impersonally severed from afar.

Security, privacy and other hard-earned consumer protections are at risk. Consumer opt-in rather than opt-out must be required for participation in time-of-use pricing experiments, and mandatory use of pre-payment or service-limiting meters must be banned.

Before laying the enormous cost and accompanying risk of smart meters on ratepayers, utility regulatory commissions should thoroughly investigate how such meters work – and the associate costs – within a specific system. They should consider:

• Service territory load shapes.
• The number and types of customers who might benefit.
• The prices of required accessories to the meter.
• Bill impacts on different customers classes and subclasses.

Today, the bulk of smart grid time and money should be focused on how to realize the benefits of smartening the grid without saddling every ratepayer with an expensive and rapidly evolving technology.  In addition to being “smart,” we should wise up and put the horse in front of the cart.

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